Introduction – the hidden parent poverty trap
The concept of child maintenance is founded on the important principle that after separation, the parent without the main care of the child should continue supporting their child. We rightly expect parents to take responsibility for their children and this includes
providing financial support. Alongside this principle we also understand the importance of the parents’ ability to pay when it is applied to a “paying parent” on a low income to begin with. This report sets out how the interaction between UC and child maintenance can result in punitive marginal tax rates in excess of 100 per cent for paying parents on low incomes, both removing all incentives to work and resulting in less money for these parents to support their children.
The CSJ estimates that once UC is fully rolled out, ore than 600,000 parents paying child maintenance – more than half of all paying parents – will face marginal tax rates up to 107 per cent when child maintenance and UC are taken together. While UC has improved the situation for paying parents, incentives to work are still all but removed when child maintenance is accounted for. This reduces the ability of the paying parent to earn more money to support their children and escape poverty.
This is compounded by outdated minimum income thresholds for the payment of child maintenance which were set in 1998. Unlike many countries, the UK has no “self-support” reserve factored into calculations; instead, minimum income thresholds for payment are set out in legislation which is now twenty years out of date. There has been no adjustment to take into account inflation over that period. This means paying parents are no longer able to maintain the standard of living they were initially intended (in law) to have and many face financial hardship.
Balanced alongside this are the needs of the parent with care and the children. A simple uprating to reflect inflation would result in these parents (mainly mothers) receiving less. It is for this reason that up-dating the child maintenance thresholds is not a straightforward solution. Instead, re-investment in UC and wider reform of the child maintenance system is needed to support the 600,000 (mainly) fathers caught in this hidden parent poverty trap.
Increasingly, shared care is the adopted arrangement of separated families with both parents sharing some of the care of children. While data is limited, evidence from government datasets suggest that almost two thirds of non-resident fathers have significant contact and involvement with their children.
This paper sets out the extent to which these factors taken together increase levels of poverty following family breakdown. We are asking for the Government to assess the full impact of child maintenance payments for low income parents in receipt of UC when it is fully rolled out to ensure that work incentives are restored and paying parents are better able to support their children.